World Currency Watch: FOREX Market, FOREX Trading BLOG

The U.S. Fed and the Bank of Canada cut rates today!

Well the Bank of Canada rate cut of 25 basis points was expected. After all, it had its planned meeting htis morning.

However, the U.S. Fed cut was the shocker. It's just eight days before its planned meeting...yet it couldn't wait until then to cut rates. Ben Bernanke was about to pee his pants and got the urge to cut rates early. He couldn't wait especially after he saw that over 40 stock markets around the world are now in "bear market" territory.

In fact, Japan's Nikkei and Germany's DAX were both down big time over night. Ole Ben knew that it would be a nightmare if he did nothing when the U.S. makets opened up...so he could contain himself no longer and surprisingly cut rates by 75 basis points this morning. So now the U.S. rates stand at 3.50%.

There are talks of the Fed STILL cutting further at the scheduled meeting by another 25 to 50 basis points. Traders may see this as a panic from the Fed or they may see it as them finally stepping up to the plate after being late to the ball game all this time.

The Fed claims to be "forecasters" but in reality, they are always "reactors" and today's actions are just futher proof of that.

Bernanke had a long time to think it all over while the U.S. markets were closed yesterday for the holiday as he watched stocks sink around the world.

Watch to see how stocks react today because the carry trades like EUR/JPY and GBP/JPY will likey follow their lead today.

It will be another volatile day in the currency markets. One stable pair in it all has been USD/CAD. So far, the U.S. dollar is holding its own as its broken the downtrend line in the pair. I believe you'll see this continue.

Over time, money will continue to run to the beaten down currencies of the Japanese yen, Swiss franc and the U.S. dollar.

Sean Hyman
Editor/Trader
www.money-trader.com

Here’s when will things get better in the U.S.

 

So what will it take for things to improve and turn around in America? It will take many factors working at once. Let me go through several of the most important ones.

 

Housing will need to stop declining. How can you know when this may happen? Look to the housing sector. Housing stocks usually turn up many months before the actual housing market does. The stock market likes to price in what it thinks will happen in the next 6 months. So when these stocks turn up, as shown in this housing ETF (symbol: XHB), then you know you may only be months away from a housing turn that will benefit the economy. So look for the downtrend line to break as a starting condition for the recovery of the economy. Click on the chart below to enlarge it.

Next we need to see oil continue to decline. High oil is like a tax on the consumer. There are a lot of things you have the choice of buying or not buying…gasoline for your car is not one of them. So as the price of oil and gas go down, this will put more money back into the consumer’s pocket. That will do more good than what will come out of Washington, D.C.

 

Interest rates will need to drop further. As interest rates drop, credit becomes cheaper. So loans for the consumer and for corporate America cost less. Therefore the consumer can get back into “growth” mode as can corporate America. As corporations can borrow to expand more cheaply, then things will look up again. That will take care of the unemployment problem in time. Earnings typically pick up first and then additional hiring follows afterwards. So there will be a delay at first…but be patient. At least you’ll see the “light at the end of the tunnel” as corporate earnings improve.

 

Finally, we need to see a vote of confidence from the consumer. We’ll see this when they spend. So watch the U.S. retail sales numbers. We won’t have an economic recovery without the consumer being involved. So watch for the Retail Index (RLX) to pick up. Again, many times…these indices will precede what we see in the economy. However, that’s a good thing because it gives you a heads up. So once you see these things improve, wait a few months and then start tip toeing back into the stock market and into high yielding currencies.

 

In the mean time, beaten down assets and defensive assets will remain supreme like the Japanese yen, Swiss franc and yes, U.S. dollar.

Sean Hyman

www.money-trader.com

Australian Central Bank's Views on Inflation

I just wanted to pass along this excerpt from a speech that Australian's central banker gave today. This way you can hear some things "straight from the horse's mouth".

The governor of the Reserve Bank of Australia Glenn Stevens said Friday the central bank board remains concerned about the outlook for inflation which is likely to remain ''uncomfortably high' in the near term.

Stevens made the comments during a speech in London, which will likely fuel expectations for another interest rate hike next month.

Stevens' comments came days before the Australian Bureau of Statistics releases fourth-quarter inflation figures which are expected to exceed the central bank's target range for annual growth of 2-3 percent.

The market's consensus forecast is for a 1.0 percent increase in fourth-quarter CPI, giving a year-on-year increase of 2.9 percent.

Core CPI is expected to increase 0.8 percent in the quarter, lifting the year-on-year rate to 3.3 percent.

In his speech, Stevens also said the global credit crisis has pushed borrowing costs higher in Australia but does not seem likely to post a problem for the overall economy.

'There is no evidence, moreover, of a credit crunch in the domestic financial sector. On the contrary, thus far the core elements of the domestic system have stepped into the potential gap left by the capital markets,' said Stevens.

The main international factors affecting the Australian economy in the next 12 months will be global economic growth, particularly in China, and business confidence,' he said.

'In both cases there is, thus far, no evidence of any significant impact, but it may be too soon to see it yet,' said Stevens.

Sean Hyman
Editor/Trader
www.money-trader.com

EUR/JPY is around its 3 year uptrend line.

EUR/JPY is around its 3 year uptrend line now. Can it hold? We'll know shortly. One thing is for sure. If the U.S. and other stock markets continue to sell off, then there's no hope for it holding.

If we get a bounce out of the stock indexes then EUR/JPY may hold the 155.00 to 156.00 level. However, if the stock market bounce is temporary as I suspect...then it will eventually break upon a future touch of the trend line.

2008 is turning out to be the year of the beaten down currencies. JPY has rallied hard. CHF (Swiss franc) has rallied hard. Even the beaten down USD has treaded water sideways lately. The high yielders that were used in the carry trades are getting killed so far this year. I think we'll see that continue until we truly put in a stock market bottom.

We're under 12,200 on the Dow. There's some support anywhere from 12,000 to the level that we're at right now. After that, the Dow doesn't have much support until 11,600ish and 11,000. So watch all of these levels and it will tell you a lot about where the carry trades like EUR/JPY are headed.

Check out the chart of EUR/JPY below. It's has a 3 year look back to it so you can see the very long trend line that it's at. Click on the chart to enlarge it.





Sean Hyman

Editor/Trader

www.money-trader.com

Radio Interview today on "the Dollar".

I've had several interviews this week on the U.S. dollar. I'll be on one more this week on this station out of California.

If you'd like to listen in, I'll be on somewhere between 3pm Central time and 3:20pm Central time today.

www.businesstalkradio.net  Go there and click on: Listen Live.

I'll try to remember to post them here. However, they also put a copy of my appearances on www.sovereignsociety.com under the "Media" tab. So check there as well.

Sean Hyman
Editor/Trader
www.money-trader.com

This proves that trading is tough and that you're not alone.

This should make those that struggle with trading feel a bit better. Even pros struggle at times.

The main hedge fund of Sailfish Capital Partners LLC, run by former SAC Capital Advisors LLC bond trader Mark Fishman, has lost about half its assets since July as investments soured and clients pulled money, according to two investors.

So see...you may be closer to being a professional than you think.ha-ha

Sean Hyman
Editor/Trader
www.money-trader.com

Australia is still Booming!

The Australian economy is Booming!

 

The Australian economy continues to impress while others are talking about “downside risks” and interest rate cuts.

 

Wednesday night, Australia reported that its unemployment rate declined from 4.5% previously to 4.3% presently. Now that’s a tight labor market. They also hired 20,100 more people in the economy.

 

So what does this mean for the Australian economy? It means that the economy is still hitting on all cylinders. There’s a lot of money sloshing around out there now. Aussies have tons of money to spend. This will continue to push up inflation which is already well above their central bank’s “comfort zone”.

 

Formerly I’d written that there were only two major candidates left that could have interest rate hikes left in them: The Eurozone and Australia.

 

Now let’s take that down to just one candidate.

 

The Eurozone drops out of the “rate hiking” race.

 

On Wednesday, the European Central Bank’s Mersch is looking for “downside risks” to the economy. What does this mean? He’s looking for their economy to slow down. If their economy slows, then they don’t have to worry about hiking interest rates further.

 

However, Australia’s labor market has been tight. If there’s one gauge that central bankers watch it’s the unemployment rate. When it’s falling, they can raise rates if they need to. If the unemployment rate is increasing then they can’t raise rates and may, in fact, have to reduce rates. So for now, Australia can fight inflation and stay in “rate hike” mode as the sole currency left in the “rate hike” race.

 

So look for Australia’s interest rate to go from its present 6.75% up to 7.0% possibly as soon as February’s central bank meeting.

Sean Hyman

Editor/Trader

www.money-trader.com

 

 

 

 

Today could turn out to be an ugly day in the U.S. stock market!

Here are just some of the reasons why:

1. The Nikkei was down 468 points overnight and continues to make new 52 week lows.

2. Carry trades continue to sell off in the currency market (like EUR/JPY, etc.)

3. Many banks are reporting layoffs and profits falling 34-38% (J.P. Morgan & Wells Fargo)

4. The Dow is right at the bottom of a major support level.

5. There's more talks of Arab Nations de-linking their "dollar pegs" if the dollar falls much further.

So buckle up, it could be a bumpy ride. Click on the chart below to enlarge it.

If stocks continue to fall, then the ones that will profit the most will be the "short sellers" of the carry trades like: EUR/JPY, GBP/JPY, NZD/JPY, EUR/CHF, GBP/CHF, etc.

Sean Hyman
Editor/Trader, www.money-trader.com

EUR/JPY has the closest correlation to U.S. stocks.

Gold has had a furious climb in the past 6 months. Why?

 

1. Gold is a place to run to in shaky times…and      there’s not more of a shaky time than now with stocks crumbling, housing      prices crashing, retail sales falling, unemployment rising, etc.  
2. It’s a place to run to in order to hedge against      inflation. The prices of commodities as a whole have been climbing very      furiously showing the rise in the “cost of living”. So inflation is      rampant. This causes money to run to gold also. They “hide away” in gold      in hopes that the value of their money won’t get eroded if they are in      gold since gold will go up along with inflation.
3. Gold is priced in U.S. dollars so when the dollar      goes down, it takes more “bucks” to buy the same amount of gold as before.      So these two trade generally inversely.

 

All time highs have been made. Gold has never been this high. So why isn’t it all over the T.V. stations like a broken record? It was this way in 1979-1980 when gold had its last bull run like this. However, when you adjust this gold run for inflation, then you get gold prices that should be over $2.200 an ounce. So that could be the reason that there’s not the “rage” that it once was back in the late 70’s. So $900 back in 1979 and $900 today are two different things.

As the U.S. Fed cuts interest rates further, it could add downward pressure on the U.S. dollar in the near term. If the dollar goes down, then it could push gold even higher over time.

 

So while gold is overdue for a near term correction, it could power higher on the back of the Fed rate cuts. If the dollar can hold up in spite of the rate cuts, then gold may have trouble continuing higher.

 

That’s the world as I see it.

Sean Hyman
Currency Director, www.sovereignsociety.com
Editor/Trader, www.money-trader.com

10 of the 34 Forex Brokers shut down!

 Months ago, I warned you that this would be happening and now it has come to pass. The National Futures Association (NFA), which regulates U.S. forex and commodity firms, raised the capital that forex firms had to set aside in order to protect the firm’s own solvency and for the protection of client assets held with them.

 

The new requirements forced these firms to set aside $5 million. Honestly, this should be pocket change to a market making operation. But as I’d forewarned you, many of these small firms were operating off of very little capital. That’s pretty scary!

 

At first, the requirements were so easy in the industry that almost anyone could be a market maker. For when an industry starts, the requirements are small so that you can get started. But as the industry grows, the requirements have to be “stepped up” for client protection.

 

These new requirements were nothing for the top few firms. For they had a war chest of $20 million or more. In fact, some of these firms have $50 to 150 million in “excess net capital) such as firms like Oanda and FXCM.

 

On Friday, January 11^th, the NFA announced that 4 more (un-named) firms had closed their doors to make a total of 10 firms that had shut down. Now that wouldn’t be too bad if there were 100’s of firms. However, there were only 34 firms originally. Now that 10 have closed their doors, there are 24 left. It wouldn’t surprise me if a few more closed their doors. After that, we should be done. After all, about 1/3^rd of the industry has been wiped off the map.

 

The Downside of being with these Small Firms

 

However, these small firms that couldn’t make the cut have to transfer those accounts over to other firms that continue to make the cut. When this happens, you don’t get the choice of who your account moves over to. You’ll generally experience quite a delay in your trading while the transfer process takes place. Then you’ll have to learn a new market maker, their software, their policies, etc. What a pain!

 

This is why I warned you of this months ago. I didn’t want my readers caught in that trap. I try to look out for you.

 

So only stick to the biggest firms with $20 million in “excess net capital”.

 

Find out how much capital your firm has set aside.

 

How can you find out who’s got that much set aside? Click here to go to the NFA’s site and click on the latest month’s report in PDF or Excel format:

 

http://www.cftc.gov/marketreports/financialdataforfcms/index.htm

 

Then look in the “Excess Net Capital” column when you find your firm.

 

If you’d like to read the official news release from the NFA, then click here:

 

http://www.nfa.futures.org/news/newsRel.asp?ArticleID=2054

 

Only trade with the biggest and the best in this young industry. Don’t be fooled or lured away to a small firm for the sake of some “bells or whistles”. They “major on the minors” because they don’t have assets to back them. So they have to have some sort of “bait” to get you to come over to them. Don’t be fooled! Stick with only the biggest and you’ll never regret it.

 

If I see other “growth pains” coming in the industry, I’ll be sure to alert you. Until then, happy trading!